School Finance 101
Several Texas school districts have declared financial exigency, and others are considering major cutbacks due to lack of funds. What is the problem with the Texas school finance system?
In 1949, the Texas Legislature adopted the Gilmer-Aiken Act, which prescribed the reorganization of state education administration. The Gilmer-Aiken Act also established the "Minimum Foundation Program", which created a funding system that provided revenue for education from both state and local sources.
In 1984, a group of school districts filed a lawsuit charging that Texas' use of property taxes to fund education resulted in substantial inequity among school districts (Edgewood vs. Kirby). The Texas Supreme Court ruled the finance system unconstitutional in 1989.
In 1990, the Texas Legislature convened in a special session and passed Senate Bill 1, which provided more money for equalization, but essentially left the system intact. After the Texas Supreme Court struck down SB 1, the Legislature passed House Bill 351 in 1991, creating 188 County Education Districts (CEDs). The CEDs were allowed to levy state-mandated property taxes and redistribute the revenues to member districts.
The Texas Supreme Court then struck HB 351 down, and the Texas Legislature returned to work. In 1993, it passed Senate Bill 7, the legislation that invoked the property tax recapture provision, also known as Robin Hood. The purpose for recapturing revenue from high-wealth districts and using it to fund lower-wealth district was to improve equity in the funding system.
By 2004, Robin Hood was recapturing $1.2 billion per year from 134 school districts. The Texas Legislature budgeted those recaptured dollars and used them to fund the Foundation Program of finance. As a result, it was hard to end the Robin Hood provisions because state government would have to find replacement funding to maintain support for schools.
During the 1990s, dissatisfaction with recapture mounted. At the same time, modest state funding increases were not keeping pace with the cost of education in Texas. To meet revenue needs of districts, school boards raised property tax rates. In fact, by 2003, nearly 690 school districts were at or near the statutory maximum tax rate of $1.50. This, in turn, sparked litigation to overturn the system because of high taxes and inadequate funding.
In 2001, a group of school districts mounted a lawsuit that became known as West Orange-Cove CISD v. Neely. When the case went to trial in 2004, over 300 school districts were involved as plaintiffs. Plaintiff school districts argued that, because they must levy the maximum property tax rate to maintain equity and adequacy, the local property tax had become equivalent to a state ad valorem tax, which is prohibited by the Texas Constitution. They also argued that the state finance system underfunded public education, preventing the districts from meeting their responsibilities to promote the General Diffusion of Knowledge, as mandated in the Texas Constitution.
In September, 2004, the Travis County District Court ruled in favor of the plaintiffs and set a date of Oct. 1, 2005 for the Texas Legislature to remedy the unconstitutional aspects of the school funding system, including unconstitutional aspects of facilities funding.
The Texas Supreme Court, in its West Orange-Cove II decision, required the Legislature to make changes to the funding of Texas public schools. Those changes were required to reduce school district tax rates and allow districts to raise their tax rates to obtain additional funds to preserve their reasonable local discretion. As a result of the decision, HB1 was passed during the third special session in 2006.
Consequences of HB1 included:
- a district could generate only the amount of funds per Weighted Average Daily Attendance (WADA) it received in 2005-2006
- the only way for a school district to increase its revenue was to increase the tax rate
- because of the limitations on school boards to raise tax rates, at some point, every district would be forced to call for a rollback election
In the first year of the new finance law, target revenue was set at the district's revenue per WADA would have been under the prior law, plus a $2,500 teacher salary increase, a high school allotment of $275 per student in grades 9-12, $110 per weighted student for declining enrollment and decline in property value.
HB 3646, the finance bill from last session, required the appointment of a select committee charged with evaluating the comprehensive system of weights, allotments, and adjustments to the current finance system and recommending new ones.
The committee findings may result in new legislation to be considered during the 82nd session.